The Secret to Buffett's Success

One quality helps the 'Oracle of Omaha' stand out

June 19, 2017

I think it is fair to say every investor, at some point in their career, has considered some get-rich-quick scheme or process designed to yield quick, impressive results from investing.

There is no particular scheme I have in mind, but I am not just referring to Ponzi schemes and the like. Subscriptions to newsletters that promise returns of 20% per year or more, or even trading strategies based on technical indicators fall into this bracket.

I am not saying all of these strategies are wrong. In fact, some of them will yield impressive results. A quantitative value strategy based on a set of rules with no scope for emotional mistakes has been shown many times to produce market-beating returns over the long term.

But while some shortcuts to investing success do exist, there is no substitute for the extreme focus.

Focus required

Warren Buffett (Trades, Portfolio) is the world’s best, and most recognized, investor. He did not get to this position by using a simple strategy or get-rich-quick scheme. His success is based on years of steady returns and a devotion to equities that is almost fanatical in nature.

To understand why Buffett has become such a great investor, you need to do more than just look at his current and past investments. He has never actually detailed his investment strategy, and I doubt he has a set template, but he does not need to.

Since he was a teenager, Buffett has religiously studied stocks, companies and balance sheets. He established his own business before going to college and as a student of Benjamin Graham learned how to analyze stocks with the added benefit of already owning a business (it is much easier to understand how stocks trade and how the underlying company functions if you have experience managing your own business).

The point I am trying to make is that before he even started to manage money for other people, Buffett had a detailed understanding of how businesses and the market work. When he started managing money for others, he spent hours studying current and prospective holdings for his funds, neglecting family life in favor of a night at his desk. This is why he really stands out from the rest of the crowd. The importance of the devotion required for sufficient equity research and understanding every corner of the market cannot be understated. While there may have been others who understood more about the market than Buffett did at the beginning of his career, he has compiled an unrivaled mental database of stocks as well as build the mental models required to evaluate businesses and ride out periods of market instability.

Don't compare

I believe one of the greatest mistakes an investor can make when coming to the market for the first time is trying to replicate Buffett. The fact of the matter is unless you are 14 and willing to spend two or three hours a day for the rest of your life analyzing stocks, you are never going to come close to Buffett’s current mental understanding of the market.

Focus is the number one trait required to become a good investor. While it may be unrealistic to believe you can ever accomplish the same as Buffett, by refining your focus, you can at least increase your chances of outperforming the market. This is the key takeaway. Buffett has become who he is through decades of focus and rigorous analysis of stocks. While it is unrealistic to believe you can replicate the "Oracle of Omaha’s" success, it is not unrealistic to try and replicate his strategy of focus to greatly enhance your understanding of the market and opportunities out there.

With the market trading at all-time highs and warnings of an imminent crash growing louder, it is now more important than ever to enhance your focus and concentrate only on the market’s most desirable opportunities without becoming distracted by the stocks of the moment.

About the author:

Rupert Hargreaves

Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. Prior to his investing and writing career, Rupert was as a proprietary currency trader. Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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